Consumer Discretionary's Disconnect

Consumer Discretionary has had a relatively uneventful year at the index level, gaining just 3.5% YTD to rank as the third-worst-performing sector in 2026. The sector's underlying breadth is a worse story. As shown in the chart below, the sector's price is actually trading near the upper end of its range over the past year after its recent run higher, but its cumulative advance/decline (A/D) line has been steadily trending lower apart from its recent rebound off the local low on October 7th. Over the past month, both price and breadth have moved higher, but breadth's longer-term trend remains weak.

To put the divergence into a longer-term perspective, the next chart compares the momentum of the sector's price index and cumulative A/D line going back to 1991. For both series, we calculated the two-month change in their respective 200-day moving averages and normalized those readings using historical standard deviations to make them comparable. Gray shading represents periods when breadth momentum was negative.

As we sometimes note, looking at a 200-DMA helps to smooth out day-to-day fluctuations and helps investors keep a level head and stick with the trend. However, Consumer Discretionary's trend by this measure doesn't look great. The past two months have seen the fastest drop in the sector's 200-DMA since the 2022 bear market and one of the sharper drops of the past two decades.

What's perhaps even more notable is how uncommon prolonged periods of deteriorating breadth have been since the Global Financial Crisis. While negative breadth momentum (the 200-DMA falling over two months) was relatively frequent throughout the 1990s and 2000s, sustained weakness has become much less common since 2009. The occasional bouts of weakness since then have included 2022's bear market, late 2015 into 2016, and Q1 of 2013 before that. This fall, however, the cumulative A/D line's trend is falling at the fastest rate since August 2009!

Consumer Discretionary's modest gain this year has masked considerable weakness among its underlying stocks. The sector's price index has recovered much of its earlier decline, but participation has yet to show a comparable improvement.